How Government Meddling Makes Us Poorer
Interview with Per Bylund – November 23, 2023
The Austrian (TA): At mises.org, we’ve focused a lot on how monetary policy can increase inequality and impoverishment. But the same could be said of many other non-central-bank interventions in the economy. What are some of these interventions that are making us worse off?
Per Bylund (PB): I think what is important to remember is that any change in the economy implies a shift in the production structure and thus in how resources are used. This includes innovations and entrepreneurship ventures, which outbid other producers and therefore replace other production. While we can use more or less natural resources, we don’t actually add much to the economy—we figure out new ways of doing things and new things to do. This is why it is so important that such changes are directed toward value creation, so that resources are shifted toward creating more value. What was is replaced by the promise of facilitating greater consumer satisfaction.
Interventions also cause similar changes, but they do so not in order to facilitate greater satisfaction but to shape production or consumption by imposing restrictions. So instead of shifting production from value creative to more value creative, what interventions do is shift from value creative to less value creative. It then follows that we get less investment in value-creative types of productions that are affected by the restriction and more investment where there would otherwise not be as much. This of course distorts the production structure. Investments in production are not about directing capital amounts, but about creating productive capital: building factories, laying railways, constructing machines, etc.
Investments in pursuit of consumer satisfaction are perfectly fine and the means of progress—they are how we improve our standard of living. But investments in pursuit of something else in fact lower our standard of living by shifting production and the capital structure toward lesser value creation. So we’re missing out on what we otherwise would have and getting more of what entrepreneurs would otherwise not have chosen to produce. Both are negative from a consumer and general prosperity perspective.
What’s worse—which I discuss in my book The Seen, the Unseen, and the Unrealized—is that these changes aren’t just temporary losses that we then recover from. The reason is that there are long-lasting consequences for the structure of production: real resources do not go to their highest-valued uses but are instead made into factories, machines, and goods of lower value. And other entrepreneurs follow up on those creations cumulatively.
So, for example, the US space program, which is often hailed as something that caused a lot of growth, directed resources away from where consumers wanted them toward developing space travel capability, which in turn facilitated other innovations based on those discoveries. Fake economists point to these discoveries, such as the GPS navigation system, as a “free lunch” that we received only because of the space program.
This may be, but it means nothing unless we compare it with the opportunity cost: what otherwise would have been. The enormous resources that were directed into placing a man on the moon were directed away from what would have benefited consumers more. And we also lost the follow-up investments that entrepreneurs would have made based on those now-lost discoveries and production capabilities.
We got GPS navigation, but what did we not get? It would most likely have been much more valuable than GPS because it would have been entrepreneurial value creation building on higher-value production. We would be on a much higher value-creative trajectory overall.
TA: A lot of these government regulations and interventions, like minimum wage laws, are supposed to help “the little guy.” Do these actually make people better off?
PB: On net, no. Read more here.
